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Entitlement Calculation |
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Contributions to an RCA should
not exceed what is required to fund the "entitlement" under the Generally
Accepted Guidelines for pensions, which are: |
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"a normal level of benefits would be the same benefit
provided under a registered pension plan without
regard to the Revenue Canada maximum. This would be 2% x years of service x
final five-year average earnings or about 70% of pre-retirement income for
an employee with 35 years of service." (CRA
Roundtable discussion, 1998). |
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Failure to follow the Generally
Accepted Guidelines increases the risk that CRA could deem the RCA not to be
an RCA, but rather a Salary Deferral Arrangement (SDA) with substantial tax
and penalties payable. |
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To ensure the RCA qualifies
under CRA’s Generally Accepted Guidelines, an Integrated Final Earnings
calculation (based on data you provide) determines the entitlement from the
RCA and the resulting maximum level of funding. |
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This entitlement calculation must be reviewed and
recalculated periodically as circumstances change (e.g., salary, RRSP and
RCA investment performance). |
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